Frequently Asked Questions

WHAT EXACTLY IS A TRUST?

The term “trust” refers to a variety of trust documents. However, when you hear of someone creating or setting up a trust or trust plan, they are most likely referring to what is known as a Revocable Living Trust. A Revocable Living Trust, often referred to as a Living Trust, is a trust created by an individual or married couple while your are living (hence the name). Because it is created while you are living and it does not change forms until you are no longer living, it offers numerous benefits.

First, because you own the assets that are being put into your trust, you own them once they are in the trust as well. Many believe that you lose control of an asset once it is owned by a trust. This is not the case with a living trust. You own the assets regardless – the only difference is that rather than owning them as an “individual” you own them as a “trustee”.

Think of it this way: your trust is like a big box. It’s your box and you can do with it as you please. You can change the color of the box. You can put things into the box, such as your house (metaphorically of course), your bank accounts, your furniture, clothing, jewelry, etc. You can take those things out. You can decide who gets them when you pass and who is responsible for holding your box and handing out those items correctly. Essentially, you created it and you can change anything or everything about it. While you are living and you can hold that box, the choice and the control remain yours.

Once you are deceased, you cannot change the terms of your trust and it becomes know as anIrrevocable Trust. This simply means that because you are no longer living, you can no longer make any changes. At this point, your trustee (which is like the executor to a Will) is responsible for ensuring that your wishes are followed and your assets are distributed according to the manner and timing dictated within your trust.

DO I REALLY NEED A COMPREHENSIVE TRUST PLAN?

Yes. Although it can be less costly and less time-consuming to set up a Trust or Will without the additional documents that often create a whole trust plan, it is not recommended. The documents that accompany a trust plan are necessary to ensure your plan works in the best possible way, and often to ensure that it works at all. Many of the trust plan documents consist of items that you may never need, but that you will want to make sure you have in case you do. Others are documents that you should absolutely have, or that work in conjunction with your trust to ensure that it actually works at a time when you truly need it to.

DO I REALLY NEED A TRUST; CAN’T I JUST CREATE A WILL?

Yes! In California a Trust is more beneficial than a Will. While this is not always the case, more often than not, it is. Here’s why:

First, California law requires that any estate with real property worth $20,000 or more OR a total estate (meaning every single thing that you own combined) worth $100,000 or more, PROBATE IS REQUIRED. The probate system in California is both time-consuming and expensive.

For example, if a person dies with an estate worth $100,000, the statutory fees (which are MANDATORY) would be $4,000. For an estate worth $500,000, the probate fees would be $13,000. Given the value of property in California, coupled with the total value of other assets, you can see how easily an estate can reach high values and require high probate fees. Furthermore, these fees don’t include the cost of an attorney, court costs, appraisal costs and so on.

You may think that a Will and properly titled assets can help avoid this, but you would be wrong. A Will does not avoid probate. It can make probate less difficult, but it can also cause the opposite to occur. If a person has a Will, it is required to be submitted to the court. The judge and attorneys will use the Will in determining how to handle the estate, but keep in mind that the instructions within a Will are followed according to the judge’s interpretation of the Will, along with any arguments made by other involved parties. This means that when you draft your wishes within a Will, you should make sure that you are extremely clear and leave very little room for interpretation. On the contrary, a trust offers more specific and direct instructions, remains private and out of the court system, and is interpreted and carried out by someone of YOUR choosing.

Additionally, changing title to your home will not necessarily avoid probate. For example, if a married couple titles their home as “joint tenants” and one spouse passes, it is true that the other spouse will not need to open a probate matter for the home. But, what happens when the other spouse passes, or if both pass at the same time? Now probate is required and whoever is set to inherit the property cannot avoid it.

Finally, a Will does nothing to avoid estate taxes, whereas a trust can be beneficial in reducing such amounts. Depending on your assets and the current laws regarding estate taxes and exemptions, this can be significant.

TRUSTS ARE NOT ONLY FOR THE WEALTHY. Remember that the golden number for probate is $100,000. Currently, the estate tax laws are at a crucial point as well. At the end of this year, the current exemptions expire (which are extremely high at $5 million per person). When they expire, the laws will revert to the previous allowance of $1 million per person with a tax rate of 55% (unless Congress agrees otherwise).

When you add up the potential value of your home, bank accounts, retirement accounts, life insurance and other assets, you may find that you are fast approaching this magic number. If your estate exceeds this number upon your death, your estate will pay 55% of any amount over the exemption limit.

For some, the threat of estate taxes is a substantial reason for creating a trust plan. For others, keep in mind that the high amounts of probate can be reason enough to create a plan to avoid it. For all, putting your loved ones through such added stress at a time when they are already dealing with a devastating loss is a key reason for planning ahead.

WHY DO I NEED A DECLARATION OF GUARDIANSHIP NOMINATIONS?

The importance of a guardianship nomination cannot be stressed enough. It may be the most important estate planning document you create. For those with minor children, a Declaration of Guardianship Nomination legally documents who will be responsible for raising your children should you become unable to do so because of incapacity or death.

Not a single parent wants to worry about how their children will be taken care of after they have passed. However, avoiding it can cause your children to be placed in child services, and ultimately in the hands of someone you do not want to care for them. Most often, a judge in a court of law, who has no concept of your wishes for your children’s upbringing, makes this determination.

A guardianship nomination ensures that you decide who will have physically and legal custody of your children after you pass. It is a legal document that can be upheld in a court of law, ensure you choose your children’s guardians, and can avoid any displacement (temporary or permanent) of your children into child services. It is the most certain and simple document for protecting your children in case of tragedy.

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